In my last blog (see PART 1), I listed some things that are broken in the Louisville area startup scene. In this article, I’m suggesting a plan.
In short, here’s our problem:
1. There are not enough startups starting in our community
2. A thriving startup scene requires a large volume of startups. Many will fail. The best will succeed.
3. There are not enough investors investing in startups in our area.
4. Startups don’t know how to properly raise capital and get started.
The number of startup investors in our area is very small. I have no idea what the actual number is, but my guess is that 200 would be on the high end. Even if we estimate higher, say 1,000 people investing in startups, we’re still missing a lot of potential. Why would I say that?
The Survey of Consumer Finances 2013 by the Federal Reserve Board shows that 10.1% of U.S. households qualify as accredited investors. The Louisville Metropolitan Statistical Area has 553,850 households as of July 1, 2015. Therefore, at 10.1%, approximately 56,000 households in the Louisville MSA should be accredited investors.
Read that again: 56,000 households in our area should qualify as accredited investors. That’s a big number. Those are investors who qualify to invest in any startup under the current SEC exemptions for privately raising capital. They have a net worth of $1 million (excluding their home) or an income of $200,000 for the last 2 years ($300,000 including their spouse). Where the hell are all these people, and how do we get them to invest?
Here’s another number to consider. If you include all of Kentucky and all of Indiana, there should be 422,000 accredited investors! If we could somehow convince every one of them to invest $10,000 in a startup every 5 years, we would pump over $4 billion into startups every 5 years in Kentucky and Indiana. If you consider the fact that non-accredited investors already can invest in some Regulation D startups and will be able to invest in more startups under the new federal Regulation CF funding, the number of potential investors gets HUGE! (BTW, there’s over 11 million people in Kentucky and Indiana combined.)
THAT’S where we need to focus our efforts: getting more of the general population to invest in startups. Our current angel investors can’t support a huge number of startups. We need to spread the risk. So, why should the general population care about investing in a startup? Because, startups produce ALL of the new jobs in our economy. If you haven’t read the 2009 Kauffman Foundation study (click here), you should check it out.
The study shows that from 1977 to 2005:
1. Startups produced 3 million new jobs per year in the U.S.
2. Existing mature companies produced NET ZERO jobs!
So, if you want our local economy to thrive in the future, startups are a MUST!
And, here’s the answer: a collective, grass-roots, all-out, social media campaign to get people investing in startups. Metro Startup Launcher (MSL) has started the ball rolling, and we have to work together, as a community, to get the word out.
So here’s how we do it:
- 1. Get as many Louisville area organizations and individuals involved as possible on the MSL “Street Team.” These Street Team members should have existing email lists and social media presence and/or a huge passion for startups.